According to a recent survey of more than 1,000 merger and acquisition (M&A) professionals, investors and advisors conducted by KPMG LLP, the audit, tax and advisory firm, 44 percent indicated that M&A activity will be highest this year among organizations in the technology, media, telecommunications (TMT) industries.
Among the respondents were 148 TMT executives, with 68 percent anticipating that their company or client will initiate at least one acquisition in 2014. Seventy-three percent of the TMT executives said that their own sectors would have the most M&A activity in 2014. Middle-market deals are expected to be predominant in TMT, with 82 percent of the TMT executives indicating that their acquisitions would be valued at less than $250 million.
"Looking ahead, the industry is expecting a higher volume of consolidation and transaction activity. With the stock market gaining strength and ample cash on hand, investors are willing to pay a premium for targets that they believe will demonstrate significant growth opportunities, allow their current technology offerings to evolve, and drive their businesses ahead of competitors," said Chad Seiler, advisory partner for KPMG's Transactions & Restructuring Services. "Technology companies are also seeking to acquire talent and intellectual property as part of a broader mobile and cloud strategy," added Seiler.
The TMT executives indicated that the most important trends driving M&A will be converging technologies (52 percent), cloud computing (43 percent), data analytics (43 percent), mobility (43 percent), and social networking (20 percent).
According to the TMT executives, they are intent on making acquisitions to:
- Enter into new revenue growth areas - 18.2%
- Expand technology platforms - 14.2%
- Gain access to intellectual property and/or talent - 14.2%
- Build and expand their audience and customers - 13.5%
- Deepen customer engagement - 6.1%
- Consolidate of components in ecosystem - 4.7%
- Accelerate their time to market - 4.1%
The biggest driver of M&A activity in tech, media and telecom is the convergence of technologies, as companies are recognizing that outstanding standalone technologies can provide even more value in combination," said Gary Matuszak, Global and US chair of KPMG's Technology, Media and Telecommunications practice. "The companies that will benefit the most will be those that have a well-defined strategy and effective integration processes in place to maximize the best use of the new technologies and combinations."
One TMT respondent commented that acquisitions would increase because "the market was consolidating and there was a war for talent." Another executive said his company would increase activity because its "balance sheet was in order and he could now focus more on growth." Additionally, one respondent summed up his company's motivation with the words "appetite, focus and opportunity."
TMT deal making is expected to be most challenged by the valuation disparity between buyers and sellers (51 percent), the limited inventory of suitable targets (24 percent), the difficulty in identifying suitable targets (23 percent), and problems with buyer/target alignment on post-deal execution strategy (19 percent).
In terms of geographic activity, TMT executives expect the U.S. to be the most active place for deal-making (62 percent), followed by Western Europe (35 percent) and China (28 percent).
The most challenging due diligence issues to contend with when pursuing TMT deals are assessing future revenue streams (35 percent) and evaluating the quality of both assets and earnings (both 13 percent). Products and services integration and rationalization (27 percent), cultural and HR issues (24 percent), and sales and marketing transformation (18 percent) were among the top integration issues for the TMT executives.
About the 2014 M&A Outlook Survey
In collaboration with the Research practice unit of SourceMedia, the publisher of Mergers & Acquisitions, KPMG LLP surveyed 1,001 M&A professionals in September 2013. The population was comprised of investors (70 percent) and advisors (30 percent) from the following industries: technology/media/telecommunications, 15 percent; healthcare/pharmaceuticals/life sciences, 11 percent; energy, 10 percent; financial services, 16 percent; diversified industrials, 18 percent; consumer markets, 12 percent.
KPMG LLP, the audit, tax and advisory firm, is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International's member firms have 155,000 professionals, including more than 8,600 partners, in 155 countries.